Prioritizing Your Savings Goals
We all know saving is important – but how do you prioritize savings goals in a way that ensures you’re on track to meet your goals, and you’re covered when you need it? Our friends over at NerdWallet have these recommendations for prioritizing competing savings goals:
Put Your Emergency Fund First
An emergency fund cushions you against surprise financial setbacks. Having this cushion for a rainy day should be your first priority when saving. But how much should you save in your emergency fund? Financial experts recommend having three to six months’- worth of your monthly expenses saved in an emergency fund. NerdWallet offers this handy Emergency Fund Calculator to figure out your optimal fund size based on your current expenses.
Keep in mind that it’s okay if you end up using the funds for unexpected or emergency expenses before you’re reached your first goal – an emergency fund is meant to be used, and more importantly, replenished.
Next, Prioritize Retirement
Retirement tops the list because no one wants to be impoverished in old age. It’s okay to start small when saving for retirement, and then begin saving more as you increase your income. The best way to save for retirement is using a retirement savings account, such as a 401k, a 403(b), or an IRA. Generally speaking, you should aim to save at least 10-15% of your pretax income; keep in mind that these types of plans have all have certain criteria and contribution limits on an annual basis, so be sure to take these rules into account as you are calculating your retirement savings goal.
So how much will you really need to retire? NerdWallet suggests targeting 70% of your annual pre-retirement income, which is a standard formula for calculating retirement needs. Their handy Retirement Calculator is a great place to start!
Determine What You Want in the Near-Term
The COVID-19 pandemic spurred many people to make major lifestyle changes, resulting in shifting near-term savings goals. These can include things like buying a home, starting a business, taking a sabbatical from work, traveling, moving to a new city, starting a family, and so on. You may have a few goals in this category, and your savings strategy might then be based on how you prioritize your near-term and medium-term goals. To stay organized, you could consider opening separate savings accounts for each one and giving them a nickname, such as “Home Down Payment $60,000” or “Lake Cabin Rental $1,500” so that you have a clearly defined goal and target fund amount. When you know you won’t need immediate access to your savings goal funds, you could consider high-yield savings accounts like Certificates or Money Market accounts to earn more on your deposits and speed up reaching your goals!
Enjoy Life Along the Way!
As important as it is to save and prioritize for the future, it’s also important to enjoy your life today! Don’t necessarily wait until you have a fully-funded retirement account to spend money on items that bring you and your family joy, within your budget of course!
Cutting Edge offers a variety of savings options to help you start putting away funds for all of your financial goals. Our Member Advocate Specialists are here to help you make a plan! Contact us to start setting goals today.Contact Us